Financing travel trailers, like financing luxury automobiles, classic cars and off-road vehicles, falls into a gray area between conventional financing and specialty financing, which has more limited availability and higher rates. How you use your travel trailer — whether as a primary residence or as a recreational vehicle — determines your eligibility for IRS interest deductions, and may moderately affect financing terms.
Travel Trailer as a Vacation Vehicle
Many travel trailers, perhaps the majority, find use as a recreational vehicle, often hitched up to the family vehicle for an occasional weekend of camping and recreational travel. The IRS does not allow you to deduct interest paid on your trailer loan for a vehicle used primarily as a recreational vehicle. — the trailer usually serves no business purpose and does not qualify as a primary residence. This may affect your ability to get a loan because the lender’s decision to finance the trailer depends on your ability to pay the loan without IRS mortgage interest deductions that reduce your taxes and therefore your expenses. It may also affect the length of your loan because lenders generally look for shorter loan terms for higher risk loans. Without the interest rate deduction for a home mortgage, your income to expense ratio declines slightly. From the lender’s point of view, this translates to somewhat higher risk.
Travel Trailer as Primary Residence
If you buy a travel trailer as a primary residence, the IRS allows you, within certain limits, to deduct your interest payments. The IRS specifically allows mobile homes purchased with land to qualify as a primary residence. The IRS will also qualify trailers purchased independently of land acquisition, and put in use on leased land. In both cases, the trailer must be “affixed” to the land. A trailer put up on permanent blocks qualifies as “affixed,” A trailer with its wheels attached, but put up on temporary blocks, also qualifies. In both cases, financing terms — which includes the time allowed for repayment — will likely improve over a trailer purchased for recreational purposes.
Loan Term and Interest Rate Ranges
When the trailer qualifies as a residence, lenders will often arrange relatively long-term financing — up to 20 years. When the trailer qualifies only as a recreational vehicle, loan terms average around eight years. A survey of travel trailer online financing options indicates that most companies will not lend for less than $7,500; some require a $25,000 minimum. For purchases under $100,000, a few lenders may require as little as a 10 percent down payment ; the majority of lenders, however, will require as much as 30 percent down. For purchases over $100,000, a few lenders require no more than 15 percent down, while most will require as much as 30 percent down.
Home Equity Loan
If you already have a primary residence, you cannot buy a travel trailer as another primary residence. But you can finance the trailer with your home equity, and perhaps on more favorable terms than you might obtain by financing the trailer directly. When residential housing prices fall, most lenders will make secondary mortgage loans only to borrowers with very favorable credit ratings and histories, and where both the primary and secondary loans, taken together, still maintain a favorable loan to value ratio. This requirement will vary from lender to lender. In general, credit unions and smaller banks may have better loan terms with less stringent lending requirements. Apply also to your primary mortgage lender, which has firsthand knowledge of your credit history.